Egypt’s private sector decreased for the 12th consecutive month according to Emirates NBD-Egypt Purchasing Managers’ Index (PMI), which witnessed a notable decrease from July’s 48.9 to 47.0 in August, marking the lowest reading in four months.
The PMI index has been below the 50-threshold, a marker that separates contraction from expansion, in the non-oil producing private sector since October 2015.
Moreover, August’s setback reflected severe contractions in output, new orders, and employment when compared to the previous month. The deterioration was mainly driven by weak demand dynamics, plagued by high prices and an acute US dollar shortage.
Egypt has been struggling to overcome its economic crisis following the 2011 revolution, and the 2013 unrest, which had a huge impact on the flow of foreign direct investment and tourism, leading to an eminent currency shortage crisis.
A weak Egyptian pound also raised prices for raw materials, which in turn increased the reluctance to engage in purchasing activities. With cost pressures on the rise, input buying and pre-production inventories decreased at faster rates in August when compared to July.
“The August PMI figures underscore the urgency to initiate a wide-ranging economic reform programme. Most importantly, the survey data highlights the ongoing need to move to a more flexible exchange rate system in order to achieve a market-clearing rate for the EGP,” said senior economist at Emirates NBD, Jean-Paul Pigat.
On a more positive outlook, FocusEconomics Consensus Forecast panellists expect total investment to increase 5.2% in the fiscal year (FY) 2016/17, with a 0.1% increase from last month’s forecast. The panel expects total investment to expand 5.3% in FY 2017.
Although the Egyptian government targets growth of 4.4% in FY 2016 and 5.2% in FY 2017, FocusEconomics Consensus Forecast panellists expect a 3.3% growth in FY 2016, marking a 0.2% increase from their last month forecast, and 3.6% growth for FY 2017.